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5 Ways Occupational Licensing Laws Hurt (Almost) Everyone

Wednesday, June 7, 2017

Occupational licensing is crippling the labor market. One of the worst examples I’ve seen comes from Gardendale, Alabama. Local news station ABC3340 reports that a lawn service threatened to report a teenager to the city because a city ordinance requires everyone who wants to do business in Gardendale to have a business license. As the ordinance is written, this apparently includes lawn-mowing teenagers.

Now, Gardendale is my wife’s hometown, where my grandmother and in-laws live, and where I can be found at the Cracker Barrel just off Fieldstown Road on the occasional Saturday. So this story got my attention immediately.

But stories like these can show everyone the serious problems with occupational licensing in general.

First, and most obviously, occupational licensing is a barrier to entry – it enriches some people at the expense of others.

People with licenses can raise their prices, produce less, and thereby earn higher profits because licensing requirements shield them from competition from people without licenses. So customers pay more and get less.

Second, occupational licensing turns us against one another and erodes the fabric of civil society.

I can think of a lot of things we can do to be good neighbors. Calling the cops on teenagers because they’re cutting grass without a business license isn’t among them. It’s easy to criticize some guy who runs a lawn service threatening to call the cops on a kid mowing grass without a license, but consider things from his perspective: Landscaping and yard work are his livelihood, and he’s jumped through all the regulatory and legal hoops to get permission to do business.

I can understand why he’d be a bit put off by an unlicensed teenager cutting into his business. It’s unfair to think he’s a villain: he is asking – quite reasonably – why a competitor isn’t being held to the same standard.

Licensing requirements make it easier for people to be sinister. Are you a petty and bitter person? Are you mad at Gary from down the street? Isn’t that his daughter Mary cutting grass without a license? All you have to do is make a phone call or two and Gary’s day suddenly gets a lot worse.

Third, it wastes police resources and, even worse, creates a pretext for harassment.

I think most of us would agree that the cops have better things to do than ask lawn-mowing teenagers for their papers. The time and energy Gardendale officials and officers are putting into enforcing these rules is time and energy they’re not putting into anything else that could be more valuable, like filling potholes or solving burglaries or just about anything else.

Again, let’s consider another sinister but probably unintended consequence. The last few years have been especially difficult for relations between the police and the people. Critics of the police argue that abuses are systemic, and defenders of the police argue that the sensational headlines we read about outrageous police behavior are generated by a few bad apples. However, we would have fewer volatile situations between police and ordinary people in the first place if the police didn’t have all these trivial rules to enforce.

So we can reduce the amount of systemic abuse and oppression by getting rid of these rules. And we can reduce the influence of “bad apple” cops by taking away some of the rules they can invoke to harass people.

Fourth, occupational licensing is a protection racket – and the general public isn’t among the protected.

For every regulation, there is at least a plausible (usually flimsy) “public safety” rationale. I’m not sure there’s a good “public safety” rationale for requiring landscaping and lawn-service licenses. Indeed, I suspect there are more mower-related accidents and injuries due to licensing and regulation – because making these services more expensive means more people will do the work themselves.

When people think they can get a special privilege from the government, they’ll use up valuable time and other resources trying to get it. This is what economists call “rent-seeking.” Rent-seekers aren’t actually creating anything and selling it on the open market. They’re just consuming resources fighting for the right to do so.

Suppose Larry from Larry’s Lawn Service spends a day trying to persuade the powers-that-be that people should be required to have business licenses in order to be allowed to cut grass. He could have mowed ten lawns that day, but instead he spent his time sitting in the lobby at City Hall and meeting with government officials. The world is poorer to the tune of those ten unmowed lawns.

Art Carden is an Associate Professor of Economics at Samford University’s Brock School of Business. In addition, he is a Senior Research Fellow with the Institute for Faith, Work, and Economics, a Senior Fellow with the Beacon Center of Tennessee, and a Research Fellow with the Independent Institute.